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UPDATE: Macau Gives SJM Green Light on Cotai Casino

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By Kate O'Keeffe

Macau's biggest casino operator, SJM Holdings Ltd. (0880.HK), Wednesday became the last of the territory's gambling companies to win approval from the government to build a project on Cotai, a rapidly developing area in the world's largest gambling center.

The finalization of the government's land contract with SJM, which is controlled by the family of casino mogul Stanley Ho, comes as Macau's six casino operators compete to expand their foothold in the Chinese territory. Nevada-based companies Las Vegas Sands Corp. (LVS), Wynn Resorts Ltd. (WYNN) and MGM Resorts International (MGM), as well as Hong Kong's Galaxy Entertainment Ltd. (0027.HK) and Hong Kong-Australian venture Melco Crown Entertainment Ltd. (MPEL), are all developing projects in Cotai.

Annual revenue growth for Macau's casinos has begun to slow--in 2012 gambling revenue rose 14% from the previous year compared with the 42% growth seen in 2011--and access to labor and gambling tables remain restricted by the government. Still, a revenue haul six times the size of the Las Vegas Strip's means Macau will remain the world's most important gambling market for the foreseeable future.

SJM's shares were the best-performing among Macau casino stocks, trading 3.0% higher at HK$22.10 in the afternoon session after the company announced the news. Hong Kong's benchmark Hang Seng Index was up 0.8%.

In October SJM said it would need to pay the Macau government a 2.15 billion patacas (US$270 million) contract premium, plus annual rent, for the land, which has an area of 70,468 square meters.

In a Wednesday statement, SJM reiterated its plan to build a casino-resort on the land with approximately 700 gambling tables, 1,000 slot machines and 2,000 hotel rooms.

But the project's ultimate scope remains unclear. Macau media reported that SJM Chief Executive Ambrose So last week said on the sidelines of an event that the company would seek to combine its Cotai land and resources with director Angela Leong, the woman Mr. Ho refers to as his fourth wife, to build a resort more than three times the size it had originally planned. In 2010, a company controlled by Ms. Leong said it would invest 10.4 billion patacas in a casino-less, family-oriented theme park and hotel resort in Cotai. Representatives for SJM didn't immediately return requests for comment.

"We note that the development timeline for this project could be slightly longer than the typical three-year cycle as the company is still in negotiations with SJM Director Angela Leong to expand the scope of the company's Cotai project via development of certain non-gaming amenities on the adjacent land that she controls," Union Gaming Group analyst Grant Govertsen wrote in a note Wednesday.

Mr. Govertsen raised his target price on SJM to HK$26 from HK$25 following news of the formal land grant.